Summary
Application: Sweet Little Treats
States :
The company “Sweet Petites Gourmandises” specializes in the manufacture of artisanal confectionery. It wishes to evaluate the profitability of a new product, a box of salted butter caramels. The data is as follows: the retail price of a box is €12, and the purchase price is €8. The company plans to sell 1 boxes for this launch.
Work to do :
- Calculate the unit margin excluding tax made by the sale of a box.
- Determine the margin rate for this product.
- Calculate the overall margin realized if all boxes are sold as expected.
- Compare the margin rate achieved with a target of 50%. How could the company adjust its offering to achieve this target?
- Explain the financial implications if the purchase cost increases by 10% but the selling price remains unchanged.
Proposed correction:
-
The unit margin excluding VAT is calculated as follows: PV excluding VAT – PA excluding VAT.
Substituting the values: €12 – €8 = €4.
The unit margin excluding tax achieved per box is therefore €4.
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The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100.
Applying the values: ((€12 – €8) ÷ €8) x 100 = 50%.
The margin rate for this product is 50%.
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The overall margin is obtained by the formula: Unit margin x quantity sold.
Replacing: €4 x €1 = €000.
The overall margin made from the sale of all the boxes is €4.
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The margin rate is already at 50%, so the target has been achieved. For a more ambitious target, the company could increase the selling price or reduce the purchase price through economies of scale.
Adjustments have already been made to maintain a margin rate of 50%.
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If the purchase cost increases by 10%, then PA HT becomes €8 x 1,10 = €8,80.
Recalculation of the margin rate: ((€12 – €8,80) ÷ €8,80) x 100 ? 36,36%.
The margin decreases to approximately 36,36% if the purchase cost increases by 10% with no change in the selling price.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Overall margin | Unit margin x quantity sold |
Application: TechnoGadget Inc.
States :
TechnoGadget Inc., a specialist in innovative electronics, is considering analyzing the profitability of its latest product, the Smart Pen. The retail price per pen is €50 (excluding VAT), while the production cost (excluding VAT) is €35. TechnoGadget plans to sell 5 units.
Work to do :
- Calculate the unit margin excluding VAT for each Smart Pen sold.
- Determine the markup rate achieved by this product.
- Estimate the overall margin if all units are sold as expected.
- If a competitor lowers its selling price to €45, what should the new selling price excluding tax be to maintain the same markup rate?
- Discuss the impact on profitability if an increase in costs reduces the unit margin by 25%.
Proposed correction:
-
The HT unit margin is obtained by: PV HT – PA HT.
By putting the values: €50 – €35 = €15.
Each Smart Pen generates a unit margin excluding tax of €15.
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The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
By applying the figures: ((€50 – €35) ÷ €50) x 100 = 30%.
The mark rate achieved is 30%.
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The overall margin is defined by: Unit margin x quantity sold.
By calculation: €15 x €5 = €000.
The overall margin possible is €75 with the complete sale of the units.
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To maintain the markup rate with a competing price of €45, we use: PV HT = PA HT ÷ (1 – Markup rate).
Replacing: €35 ÷ (1 – 0,3) = €35 ÷ 0,7 ? €50.
The selling price can only be maintained at €50 for an identical mark-up rate. An adjustment to €45 would mean accepting a reduced margin.
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A 25% drop in unit margin indicates a new margin of €15 x (1 – 0,25) = €11,25.
This results in an adjustment in prioritization to minimize expenses or increase sales where appropriate.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Overall margin | Unit margin x quantity sold |
| Calculation of the selling price to maintain the markup rate | PV HT = PA HT ÷ (1 – Mark rate) |
Application: EcoVélo Distribution
States :
ÉcoVélo Distribution, a specialist in eco-friendly bicycle accessories, is looking to assess the margins of its flagship product, the Sustainable Green Helmet. The retail price per helmet is €40 (excluding VAT), with a purchase price of €25 (excluding VAT). The first production run is 1 units.
Work to do :
- Calculate the unit margin that ÉcoVélo makes on each helmet sold.
- Analyze the margin rate achieved with these helmets.
- Estimate the overall margin anticipated for a complete sale of the series.
- EcoVélo wants to improve the margin rate to 60%. What adjustment is necessary on the purchase price, all things being equal?
- Discuss the implications if 25% of inventory remains unsold.
Proposed correction:
-
The formula for the HT unit margin is: PV HT – PA HT.
With available values: €40 – €25 = €15.
The unit margin made on each helmet sold is €15.
-
The margin rate is calculated by: ((PV HT – PA HT) ÷ PA HT) x 100.
With the data: ((€40 – €25) ÷ €25) x 100 = 60%.
The margin rate achieved is 60% for these helmets.
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The overall margin is calculated as follows: Unit margin x quantity sold.
This is estimated at: €15 x €1 = €500.
The overall expected margin is €22 with a complete sale.
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To achieve a margin rate of 60%, the selling price must be adjusted in relation to the purchase price: PA HT = PV HT ÷ (1 + new margin rate).
Substituting: €40 ÷ (1 + 0,6) = €25.
No adjustment is necessary because the current margin rate is already 60%.
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An unsaleability of 25% means that 1 units will be sold: 125 x €1 = €125.
The financial results are impacted by a drop in the overall margin to €16 in the event of unsold items.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Overall margin | Unit margin x quantity sold |
| Adjusting the purchase price for a target margin rate | PA HT = PV HT ÷ (1 + New margin rate) |
The nine adapted exercises continue this structure, changing the context, product and company names, and numbers used to maintain variety and engagement for financial management students.